The opinion of the court was delivered by: Baker, District Judge.
In this diversity action, the plaintiff, George Fabe (Fabe),
Superintendent of Insurance of the State of Ohio, as liquidator
of Proprietors' Insurance Company, an Ohio Corporation, with its
principal place of business in Delaware, Ohio (P.I.C.), seeks to
recover premiums and commissions from the defendant, Facer
Insurance Agency, Inc., a Delaware Corporation, with its
principal place of business in Rantoul, Illinois (Facer). More
than $10,000 exclusive of interest and costs is at issue. See
28 U.S.C. § 1332. The material facts in the case are not in dispute
and each party has moved for summary judgment. See Fed.R.Civ.P.
P.I.C. was in the business of insuring against risks associated
with aviation and, as "the Company", on January 17, 1980, entered
into an Agency Agreement in writing with Facer as "the Agent."
That contract provided generally that the agent was to procure
proposals for contracts of insurance covering risks that the
Company lawfully could insure against. As they apply to this
case, the pertinent parts of the Agency Agreement are that:
Pursuant to the Agency Agreement, Facer solicited proposals,
and P.I.C. wrote contracts of insurance for which premiums were
collected and forwarded and commissions retained. Then, on July
30, 1981, Fabe's predecessors in office were appointed
Conservator of P.I.C. by the Court of Common Pleas of Franklin
County, Ohio, to oversee the rehabilitation or liquidation of
At various times between July 30, 1981, and September 4, 1981,
all of the policies of insurance procured by Facer for P.I.C.
were cancelled by Fabe, or his predecessors, acting under orders
of the Ohio courts. On July 30, 1981, P.I.C.'s records show and
Facer admits, that there was $20,453.47 due on account to P.I.C.
from Facer as total premiums, both earned and unearned, for
policies of insurance procured by Facer. There is also no dispute
that on January 31, 1982, $9,580.75 was the amount of Facer's
commissions on unearned
premiums resulting from the cancellation of the P.I.C. policies
written by Facer.
Fabe claims that Facer is liable for all the premiums due on
July 30, 1981, without regard to whether the policies on which
the premiums were due were subsequently cancelled and
irrespective of whether the premiums became unearned premiums. It
is also Fabe's position that Facer must seek its remedy for any
offset for unearned commissions in the Ohio liquidation
proceedings and, for that purpose, Facer must take its place as
a general creditor of P.I.C.
Facer, on the other hand, contends that it is not liable to
P.I.C. for unearned premiums and that the insolvency of P.I.C.
and the cancellation of the policies, relieved Facer of its
responsibility to forward premiums. As to the unearned
commissions, Facer says it credited the cancelled policyholders
for the amounts of those commissions when Facer wrote new
policies to take the place of the cancelled P.I.C. policies.
Facer asserts that the commissions rightfully belonged to the
policyholders and not to P.I.C. and that Facer, therefore,
returned the commissions to the policyholders.
Facer argues, and Fabe does not contest, that the law of
Illinois is applicable to this case. See Klaxon Company v.
Stentor Electric Manufacturing Company, 313 U.S. 487, 61 S.Ct.
1020, 85 L.Ed. 1477 (1941). "Under traditional Illinois conflict
of law principles, the validity, construction and obligation of
a contract are determined by the law of the place where it is
made and performed." (Footnote omitted.) Zlotnick v. MacArthur,
550 F. Supp. 371, 373 (N.D.Ill. 1982), citing Walker v. Lovitt,
250 Ill. 543, 95 N.E. 631 (1911).*fn1
The crux of the dispute between Facer and Fabe lies in whether
the terms of the Agency Agreement between P.I.C. and Facer
control the economic relations of the parties or whether the
statutory procedure for liquidation of an insolvent insurance
company governs the case. Is this a case of interpretation of
contract rights or a case of enforcing the statutory liquidation
procedures for defunct insurance companies? It is apparent that
the case is of the latter variety.
Illinois would certainly give full faith and credit to the Ohio
Court's orders governing the liquidation of P.I.C. since there is
nothing in the Ohio proceedings which is contrary to Illinois
policy. People ex rel. Ickes v. Rushworth, 294 Ill. 455,
128 N.E. 555 (1920); Mell v. Goodbody & Co., 10 Ill. App.3d 809,
295 N.E.2d 97 (1973).
Turning first to the question of the claim for premiums, the
Illinois statute governing the rights of agents to set-offs or
counterclaims against insurance companies in the process of
liquidation is clear.
No set-off shall be allowed in favor or an insurance
agent or broker against his account with the company,
for the unearned portion of the premium on any
cancelled policy, unless that policy was cancelled
prior to the entry of the Order of Liquidation or
Rehabilitation, and unless the unearned portion of
the premium on that cancelled policy was refunded or
credited to the assured on his representative prior
to the entry of the Order of Liquidation or
Ill.Rev.Stat. ch. 73, Par. 818 (1981).
The plain meaning of the statute is that Facer owes Fabe for
the premiums due on
P.I.C. policies written by Facer prior to July 30, 1981, the date
on which the Ohio Courts ordered the liquidation of P.I.C. The
venerable cases of Farmers' and Merchants' Insurance Company v.
Smith, 63 Ill. 187 (1872) and Smith v. Binder, 75 Ill. 492 (1874)
do not support Facer's case, nor does Holz v. Smullan,
277 F.2d 58 (7th Cir. 1960). The cases are decisions prior to the 1967
enactment of Ill.Rev.Stat. ch. 73, Par. 818 and are not consonant
with the legislative statement of public policy regarding
liquidations of insolvent insurance companies. Facer must look to
the Ohio proceedings for the satisfaction of any claims against
P.I.C. See Ratchford v. U.S. Central Underwriters Agency,
492 F. Supp. 137 (E.D.Mo. 1980).
Facer's argument that, under the terms of the Agency Agreement,
only earned premiums were required to be paid is without merit.
The agreement plainly states that "money due the Company on
business placed by the Agent with the Company shall be paid in
full no later than forty-five (45) days following the end of the
month in which the policies become effective." The last sentence
of paragraph 2 of the Agreement does not relieve the Agent of the
duty to remit premiums within 45 days. It merely makes clear that
if the Agent extends credit to the insured, the Agent is still
responsible to the Company whether or not he collects from the
The unearned commissions retained by Facer were on premiums
that Facer had collected from policyholders and forwarded to
P.I.C. The policies were all cancelled subsequent to July 30,
1981, the date of liquidation, and under Ill.Rev.Stat. ch. 73,
Par. 818 (1981) Facer has no right of set off. The same rationale
that makes Facer liable for the premiums makes it liable for the
Facer claims damages for P.I.C.'s breach of the Agency
Agreement. The claim is frivolous and does not merit discussion.
No claim for damages can be made for breach of agreement where
the breach is occasioned by court supervised liquidation. Facer's
remedy is in the liquidation proceeding. O'Hern v. DeLong,
298 Ill. App.? 375, 19 N.E.2d 214, 215 (1939).
Fabe claims prejudgment interest and is entitled to recover it.
Ill.Rev.Stat. ch. 17, Par. 6402 (1981) provides:
Creditors shall be allowed to receive at the rate of
five (5) per centum per annum for all moneys after
they become due on any bond, bill, promissory note,
or other instrument of writing. . . .
The amounts owed under the agreement were subject to ready
calculation and the fact that Facer defends "in good faith" does
not obviate Fabe's right to receive pre-judgment interest. KFK
Corp. v. American Continental Homes, Inc., 71 Ill. App.3d 304, 27
(1979); Hass v. Cravatta,
71 Ill. App.3d 325,
Finally, some mention should be made of the inconsistency of
Facer arguing in this case that it should not be required to pay
its obligations to P.I.C. in the Ohio liquidation proceeding and
yet the briefs and the discovery reveal that Facer has made
claims against the Illinois and Indiana Insurance Guaranty Funds
on cancelled P.I.C. policies. Facer apparently took assignments
from P.I.C. policyholders. See generally Ill.Rev.Stat. ch. 73,
Par. 1065.82 et seq. (1981). Facer also has made claims in the
Ohio liquidation proceedings for refunds from P.I.C. policies
written in Wisconsin.